Economics | South Africa is missing a union for the future employed

By Pierre Heistein

This article originally appeared in the Business Report Opinion & Analysis pages on 06 October 2011. To interact with Pierre, visit www.facebook.com/understandingeconomics.

We all encourage progress in one form or another, but what we often do not talk about is how much destruction it causes on the way. For example, in the late 19th century, what is now the Cape Winelands was supported by a thriving wagon industry employing 24-hour production lines just to meet the demand. With an increase in the use of rail, and later the motor car, this industry all but disappeared – along with its skills, employment and knowledge. A more recent example is Google Earth and Google Maps; brilliant for most of us who can now find our way with a click of a button – but spare a thought for the cartographers, map printing houses and aerial photographers who now no longer have a competitive product.

The economic theory behind this principle was first developed by Karl Marx in the 19th century and popularised by Joseph Schumpeter in the 1940s, who termed it “creative destruction”. At its core, creative destruction refers to the economic flow of reallocating resources to where they have a competitive advantage and are used most efficiently for the greater good of society. The net long-term gain of this is positive but, in the short term, it can cause economic distress, increase unemployment and lead to skills becoming obsolete.

In hindsight, the dots are easy to connect and the argument a simple one. Very few of us would argue that we would be better off if the wagon industry had been protected from destruction and we had closed our borders to the introduction of the motor car in favour of protecting jobs. But what about looking forward?

If the South African railways are developed to carry a larger burden of freight transport, this would result in thousands of jobs lost in the trucking industry. Promotion of green economy industries will open up whole new branches of opportunities for wealth and employment, but it will also cause the destruction of more traditional products and services that cannot compete with the new technologies. Companies that can adapt and compete will thrive, but in many cases this is not possible. Decisions on these kinds of policies are hard to make not only because future gains are uncertain, but also because they are bitterly contested by those who stand to lose and weakly supported by those who could gain.

One of the most controversial cases of creative destruction is the South African textile and clothing industry. The industry has been proven to be inefficient and uncompetitive on the global market and has successfully fought for years for high trade barriers against cheaper imported products.

Economically, it makes sense for this industry to shut down completely and for its resources (capital, labour and land) to be redistributed to where they can be more efficiently used and result in a higher total gain to society. But, politically and socially, this is a very difficult thing to implement as thousands of jobs will be lost and skills made obsolete, leaving many with nothing.

But in the same way that losses in the wagon industry led to greater gains in the car industry, who stands to gain from the restructuring inefficient industries in South Africa? And who is representing them in the debate of whether such policies should be followed or not? A union for the future employed is impossible, but were it to exist, it would often completely overpower the current unions defending those who risk losing their jobs. The unemployed are not fairly represented on the debating table. While it is easy to point out someone who will lose their job, someone who has lost an opportunity to gain a job is just as valuable.

This article is published under the Creative Commons Attribution license.